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How do governments make money ?

 These are challenging times. Governments are trying to keep their economies alive by injecting billions of dollars across the board. However, they are trying to do so while receiving less money, a very difficult task, especially for nations where PUBLIC DEBT was already high before the pandemic.

So how do governments make money ? 

Lets ger started: For most governments, the main source of revenue is taxes. In the U.K., the biggest chunk comes from taxes on people's earing, known as Income Tax and National Insurance contributions. If you are employed in U.K., these comes out of you paycheque even before it hands in your bank account, While in the United States, salaried workers often have to pay a retrospective tax bill based on their previous years earnings. There are also plenty of indirect taxes levied when goods and services are sold. When a buy a coffee, a chocolate bar or a car, well that's taxed too in U.K.. These consumption taxes, such as the U.K.'s VAT  or Indian's GST are another important source of revenue.In fact, taxes on income and consumption amount to about two thirds of tax revenues in the U.K. 

It's a similar picture in the U.S. about half of Federal revenue comes from individual income taxes, while about a third of the total comes from payroll taxes that fund social insurance programs. companies are also taxed on their profits. however, corporate tax in the U.S.has Fallen as a proportion of government receipts since the 1950s, reflecting how the United States has tried to encourage business activity with lower rates. while taxation patterns are mostly similar in developed countries, low income nations are more reliant on trade and consumption taxes due to the nature of their Economies. for example, agricultural workers rarely have fixed regular incomes, making it hard to calculate income taxes. the tax collection system in low income economies is also tends to be less efficient, which in turn makes generating revenue harder. even for an oil rich country like Saudi Arabia, which has no income taxes, its increased spending in 2020 forced it to triple it's consumption tax to 15%. traditionally, governments have tried to match their expenditure with the money they receive from all these source of income, also known as running a balanced budget. however, they can run a deficit and borrow money from financial markets to make up the shortfall. but this is a delicate balancing act because interest payments can mount up, effectively increasing spending. if lenders worry about the total level of Debt getting out of control and threatening the ability of a government to repay them, they charge a lot more for these loans.


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